Agriculture Committee on June 19th, 2023

[The Vice-Chair, Conservative, John Barlow]

I call this meeting to order.

Good afternoon, colleagues. I apologize for the delay.

We're having some sound issues with Mr. Turnbull. We're going to try to figure them out, but we'll get started. From what I understand, Mr. Turnbull is not up for questions in this first hour, so I think we can proceed to keep us on schedule. Hopefully, before we go to the second hour of discussion on the environmental agriculture report, we can get Mr. Turnbull back online.

We'll proceed with what we have for this meeting.

Colleagues, welcome to meeting number 69 of the House of Commons Standing Committee on Agriculture and Agri-Food.

Today's meeting is happening in a hybrid format. The proceedings will be available via the House of Commons website. So that our guests are aware, the webcast will always show the person speaking, rather than the entirety of the committee.

I know, Brad, your kids are watching, but no screenshots of how well dad is doing today are allowed, if you don't mind.

Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. If interpretation is lost, please inform me as quickly as possible, and we'll try to get that squared away before we proceed.

To our guests, before speaking, please wait until I recognize you by name. You'll see the red light on your microphone turn on, and then you'll be ready to go. When speaking, for the interpreters, speak as slowly and succinctly as you can.

To my colleagues, I remind you that all comments must be made through the chair.

Pursuant to the order of reference of Wednesday, May 17, the committee will resume consideration of Bill C-280, an act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (deemed trust – perishable fruits and vegetables).

I would like now to welcome our witnesses. With us today we have, from the Canadian Produce Marketing Association, Ron Lemaire, president. From EarthFresh Farms Inc., we have Brad Wiseman, chief financial officer.

You'll each be given up to five minutes for your opening remarks. I will give you a signal when you have one minute left to wrap up your comments, and then we will begin our questions from the members of this committee.

Moving forward, we'll start with Mr. Wiseman from EarthFresh Farms. You have five minutes, please.

[Brad Wiseman, Chief Financial Officer, EarthFresh Farms Inc.]

Thank you very much.

EarthFresh Farms Inc. is a Canadian produce company based in Burlington, Ontario, that specializes in growing, packing and distributing potatoes, especially organic potatoes and exclusive premium varieties, to retailers and food service companies in Canada and the U.S.

With over 15,000 acres of its own varieties of potatoes, the company produces the largest stock of exclusive potatoes in North America. Overall, we ship 450 million pounds of potatoes to Canadians from coast to coast. As well, we have four packing facilities. We have one in P.E.I., which is the largest fresh packing facility for potatoes. We have our head office in Burlington, Ontario. In Millgrove, Ontario, we have a growing, packing and storage facility. We have a new Atlanta, Georgia, operation, where we're also a member of PACA.

I'd like to thank AAFC for the ongoing support, the National Research Council and IRAP for helping us drive growth, innovation and the significant benefits of Canada's support for all the projects that they have funded. We'd like to thank Innovation Canada for the accelerated growth service program that we're very proud to be part of.

Thank you for allowing me to be a witness with respect to Bill C-280. It is exciting how close we are, but there's still further work to be done. I'm here to represent the Canadian processor and highlight the financial challenges the bill will have throughout the entire value chain. The value chain is the producer, the processor, wholesaler, retailer, food service and then eventually the product gets to the end consumer. The end result will be an increase in prices for the end consumer due to the increased cost of borrowing for working capital requirements at each stage of the value chain.

The key summary points are as follows.

Ensuring Canadian producers are protected under the bill in its current state will cause processors like EarthFresh to have priority payables with the producers. Priority payables, like payroll, taxes and pension costs, are deducted under all operating, banking and borrowing base calculations. This will cause processors not to have the ability to utilize any portion of their operating facilities with lenders.

Companies throughout the value chain will be forced to invest significant reserves in the business or find alternative sources of high interest financing because nothing will be secured against those facilities. This will create significant challenges for businesses throughout the value chain to grow and have innovation.

Potentially, prices for the end consumer could increase by a minimum of 5% in order to find alternative financing solutions, such as the factoring of AR or AR insurance.

As members of the CPMA, which we're very proud of and involved with, we have discussed the challenges from the processor perspective. Unfortunately, the current Bill C-280 does not have the correct solution. In addition, further investigation has to be done to understand the material financial challenges it will cause throughout the value chain.

The overview of key concerns has been discussed, but right now there's still insufficient analysis of the financial effect throughout the entire value chain. We need to take our time. We need to work with the lending industry, the banks, to see how they will interpret Bill C-280 right now. We cannot do it after the fact because it will have a significant financial burden on the entire value chain if it moves forward in this state.

Now we have the chance to get it right before we move forward. I have looked at the analysis that we currently have. Right now, it dates back to 2015, so there's further work to be done.

As well, current U.S. banks deduct the priority payables from the borrowing base. This is confirmed by my own direct financing experience with U.S. national and regional banking institutions.

To summarize, I look forward to further discussions of the issues and solutions. As well, I have the following suggestions.

Quantify the impact to processors and other agri-food businesses. This can be done by engaging in direct conversation—this is, for me, the most important—with Canadian banking institutions, with Farm Credit Canada and EDC, noting that the majority of FCC businesses are with term loans that only have collateral on assets outside of working capital; with more businesses in the value chain; and finally, with corporate lawyers who have a key understanding of Canadian and U.S. financing.

Thank you.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Wiseman. I appreciate your testimony.

Before I move on to Mr. Lemaire, I was remiss in not welcoming Ms. Damoff and Ms. Dabrusin, who are filling in for Ms. Taylor Roy and Mr. Louis today. Welcome and thanks for coming.

We'll now go to Mr. Lemaire for five minutes, please.

[Ron Lemaire, President, Canadian Produce Marketing Association]

Good evening, Mr. Chair and committee members.

On behalf of the Canadian Produce Marketing Association, I want to thank the committee for the opportunity to speak to Bill C-280 , the financial protection for fresh fruit and vegetable farmers act.

CPMA represents over 830 companies growing, packing, shipping and selling fresh fruits and vegetables in Canada. We support Bill C-280, as it is a critical fit-for-purpose tool for an industry that is unique and currently unprotected. CPMA also concurs with witness testimonies of June 12 which frame rationale and support for the bill.

It's from this perspective of a diverse membership that CPMA would like to emphasize the importance of maintaining the existing provisions of Bill C-280 that provide financial protection to all suppliers of fresh produce. I'd also like to table, in both official languages, a letter sent earlier this spring to all members of Parliament from 35 national and regional organizations from across the country voicing their support for this important legislation across the entire supply chain.

As noted by previous witnesses, all suppliers across the fresh fruit and vegetable supply chain are vital to the stability of the market. Packers, wholesalers, brokers and others act as a critical intermediary between growers, retailers and food service, and it is essential that they receive the necessary protection to ensure that payments are able to flow down the chain and ultimately to the grower. What happens when those suppliers go bankrupt and can't pay the farmer or simply walk away because they cannot turn a profit? The farmer doesn't get paid, and the Bankruptcy and Insolvency Act does not provide effective protection for fresh produce sellers in Canada due to the high perishability of their products and the industry's longer payment terms.

During the committee's June 12 meeting, there were questions around the definition of “fruit and vegetable supplier” and whether Bill C-280 might benefit retailers. It's true that retailers often operate in closed ecosystems where produce is bought and distributed by centres and sold to corporate stores, franchises or through other commercial relationships, in effect, operating as a wholesaler. At the same time, we must recognize that this business relationship still ultimately results in fresh fruit and vegetable growers requiring payment for their product, payments that could be jeopardized if the deemed trust protection is limited to the first level of sale.

As an example, in the 2015 bankruptcy of Target Canada, Sobeys Wholesale, which was contracted to supply produce and other foods, was left in a position to self-insure $3 million in debt. Had they not done this, we would have seen a ripple effect in the Canadian produce industry that would have been significant.

Under the provisions of Bill C-280 as written, all suppliers would benefit equally. This definition of “supplier” is key to providing the equivalent protection we see in the U.S. Perishable Agricultural Commodities Act, PACA, which covers all suppliers along the chain. Bill C-280 would therefore enable Canada to obtain and reinstate the reciprocal protection for Canadian sellers that was lost under PACA in 2014.

A letter of commitment was sent on May 12, 2016, from the USDA to then AAFC assistant deputy minister Gorrell, confirming the steps required for reciprocity and comparable systems. These include: mandatory licensing of fresh produce dealers on a federal level; the availability, comparability and effectiveness of dispute resolution systems; investigative and enforcement authority; and a deemed like trust system, which would allow for comparable outcomes to the PACA system in the United States. We have three of the four steps.

In closing, I will note that this has been a long road. There is now political will and unanimous support at second reading. This is a clear sign of the importance of Bill C-280 and the need to move this legislation forward. In doing so, you will provide a vital tool that will stabilize a fragile system. I would encourage the government to move forward as quickly as possible.

We'd like to thank Scot Davidson and all of you in this room for your support to move this important issue forward.

I look forward to the opportunity for any questions.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Lemaire. I appreciate that.

Welcome to Mr. Bains as well. I apologize. I didn't see you subbing in for Mr. Turnbull. Thank you very much for jumping in when we have technical problems. Hopefully, we'll get that fixed.

Now to our questions from our colleagues, we'll start with the Conservatives and Ms. Rood for six minutes, please.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Chair.

Thank you, witnesses, for being here today and for your testimony.

Mr. Wiseman, I have a question for you to start off with.

In this legislation, Bill C-280, the provision would not come into effect until after 30 days of not being paid, and 35 to 40 days is when most banks would say that the debt is bad and will refuse to finance against such debt. Payments in arrears are often strung out and made partially for much longer than that. Do you believe this legislation would affect the financing of receivables?

[Brad Wiseman]

There's a lot of uncertainty around this legislation. We have to get clear guidance from the banks on how they will interpret it. The reality is that it's a priority payable and it will go ahead of the bank. With that, just like anything else with a priority payable, since it goes ahead of the bank, it comes off as a deduction.

If a business is paying its payables on time, that's great. Good businesses like EarthFresh do. If they interpret it as not being a priority payable before those terms, we'd be fine, but there's a lot of uncertainty.

In the past, and based on experience, if there's a priority payable and they're ahead of the bank, it comes off as a deduction, so we need to have clarity right now from the banks to see how they will interpret this bill. We do not have clear guidance yet. That's why we need to take our time and see how they will interpret it.

I understand your point, and that would be great, but we still do not know how they will interpret it.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Mr. Wiseman, nobody goes from being 30 days in arrears to bankruptcy. It just doesn't happen that way. There's a process to declare bankruptcy. Even according to the Chartered Professional Accountants of Canada, the process will take about 45 days. That's coming from accountants.

Where is the disconnect between how the banks interpret and how your organization interprets how this bill works? We have heard testimony from other witnesses and we have not had this issue brought up. In fact, I haven't heard from anybody in industry who has this issue or who believes that the banks would interpret this....

If you look at the U.S., it's not a problem in the U.S., and they operate with the same kind of legislation as what we have here.

I haven't seen any comments from the banks on this at all. It's just coming from you. If it does not make sense that a bank would no longer finance your receivables with only a five-day crossover, unless too much money has been borrowed and there are no assets....

Is this a unique situation, maybe specifically with your bank? Why are you the only business that seems to have this concern? Even organizations have not brought up this concern, including the CPMA here today.

[Brad Wiseman]

I'm bringing up the concern because I have a clear understanding of what the technical issues are. It becomes a priority payable. I have direct experience with U.S. financing and PACA. With it becoming a priority payable, there is the risk that it will come off the borrowing days, and right now there is no clear guidance from lenders.

I'm taking this opportunity of bringing it to the committee to say, “Let's take our time. Let's see. How will the banking industry decide how it interprets Bill C-280?” We do not want to be in a situation where we have a borrowing base calculation, but then packers, wholesalers and retailers that have focused just on produce get it all ground down due to the large payables that they would have.

We still do not have a clear understanding. We still need to take that time. We still need to do that analysis.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Wiseman.

Mr. Lemaire, I'll turn to you for a comment on this.

Have you heard from anybody else in industry that this could be a problem?

[Ron Lemaire]

No, at this point we have not.

We've conducted a survey with wholesalers across the country. In that work, everyone concluded that lending relationships are unique to each company's own situation.

We understand that this may impact unique organizations, and the risk for some organizations may exist. However, in speaking with senior ag portfolio lenders in the banking industry, they could see how this would provide stability in the market as has been discussed by previous witnesses.

Further, we recognize that the Canada and U.S. systems, while different, have many similarities. With the borrowing mechanism in the U.S., as an example, while they recognize the priority payable, they will also strike that out of lending programs and it's a wash in the borrowing scheme.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Right.

You mentioned a letter, and there are, from my understanding, four different things that Canada must meet in order to be able to have reciprocity with the U.S. I believe having this legislation is one of them. This is one of the most important pieces in order for us to get back reciprocity with the U.S. for PACA.

Can you explain that a bit further, please?

[Ron Lemaire]

Certainly. In 2016, Charles Parrott, who was the administrator at the time, sent a letter to the assistant deputy minister at Agriculture Canada outlining the key pillars that are necessary. I noted that in my testimony.

The specific one was comparability under a deemed trust. Without the entire supply chain as they deliver in the U.S., it's unlikely that we would access reciprocity with the U.S., because we wouldn't be providing a similar or like system in bankruptcy protection.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Without this piece of legislation, it would have a greater impact than the potential that may or may not exist, according to the issue that Mr. Wiseman has brought up.

[The Vice-Chair, Conservative, John Barlow]

I'm sorry, but the time is up.

I'll ask you if you can answer that as succinctly and as quickly as you can.

[Ron Lemaire]

It's a simple answer. Yes, there's greater risk.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.

[The Vice-Chair, Conservative, John Barlow]

Thank you.

Ms. Damoff, you have six minutes, please.

[Pam Damoff, Liberal, Oakville North—Burlington, ON]

Thank you, Chair.

Thank you to you both for being here.

For full disclosure, EarthFresh Farms is in my riding. I'm very proud to have toured there many times.

Mr. Lemaire, we met several years ago when you were advocating for your association.

Mr. Wiseman, I'm wondering if we could talk a little bit about banking.

Is this something that's unique to EarthFresh, or is it because EarthFresh is the only one that's come forward? I'm just following up on Ms. Rood's comments. I wonder if you can clarify the uncertainty you're feeling.

[Brad Wiseman]

Absolutely, and I appreciate the question.

This is not unique to EarthFresh Farms Inc.. When you have an operating facility for working capital purposes, a bank will lend and allow you to margin against your receivables, but they take security over your receivables. With that, when you do your calculation, they say, “Okay, back out your priority payables.” As I noted before, priority payables are payroll, withholding tax and pension costs, really minor costs that get deducted because businesses pay weekly or biweekly. This would create a situation that all the payables become a priority payable. It would fully get deducted off their operating base calculation and, for a lot of the businesses that focus on fresh fruits and vegetables, they would get ground down to zero.

As I mentioned, there are other sources of financing, unsecured sources of financing, but that's at a higher interest cost. We need to get full clarity from the banking industry as to how they would interpret it. It would be the situation throughout the entire value chain, the processor, the wholesaler, and potentially the retailer and food service. That's why we need full clarity on how they would calculate it and how they would interpret it from a borrowing base calculation.

It is such a material issue that we just need to bring it out in the open. I'm taking the time here to say let's get it right. It's a great opportunity. This bill can offer a lot of security and make the industry stronger, but let's just do it right and take our time.

[Pam Damoff, Liberal, Oakville North—Burlington, ON]

If the bill was to move forward, would it be of any benefit if this was phased in over a period of time, say over five years?

[Brad Wiseman]

Being phased in over five years would definitely be a solution. What would happen is it would give time for the banking industry to decide how they are going to interpret it. What amendments would they have to make to their entire lending process? It's not just having a relationship and saying, “Okay, let's just waive this exclusion”.

This is going to become legislation. It's not going to be based on a relationship. It's going to be based on how they need to follow it. There are regulations in place for lenders, and they will have to follow them, just like how they deal with the calculations of their borrowing base where they deduct payroll, taxes and pension costs. It's clear legislation, and it's all part of the borrowing base calculations.

[Pam Damoff, Liberal, Oakville North—Burlington, ON]

Mr. Lemaire, I want to turn to you for a moment.

Have you done consultations with the banks? I don't think the banks have ever appeared on this bill.

[Ron Lemaire]

The banks have been silent. We've spoken to the Bankers Association. The Bankers Association has a standing policy that no one is a superpriority, bottom line. That was years and years ago. We've been working at this since the early 2000s. In those conversations, it's just a standing order.

[Pam Damoff, Liberal, Oakville North—Burlington, ON]

Have you consulted with any other associations, like the Chamber of Commerce? Do you have any other organizations?